Following the relatively straightforward implementation of SWIFT Release 2019 this November, are you ready for the more complex requirements of SWIFT Releases 2020 and 2021? Here I’ll summarise what’s in store across both Trade Finance and Payments for 2020 and beyond. It’s worth noting that the impact of the changes planned for November 2021 are among the largest affecting technology systems in the history of banking, so it’s essential to start preparing now.
Trade Finance – changes to guarantees and standby letters of credit
Trade Finance already had a taste of SWIFT’s mandatory changes with the 2018 release (SR2018) last year, with banks coming through that with varying degrees of success. SWIFT planned and forewarned of major changes for Trade Finance as part of its SR2019 release, but after SR2018 went into production, with all the problems and costs faced by many, some of the biggest banks refused to accept further significant changes so soon. This resulted in SWIFT postponing the planned 2019 changes until 2020.
The upcoming changes for Trade Finance in 2020 are mainly in the area of Guarantees and Standby Letters of Credit. The changes are complex and numerous, and many banks will face similar problems to those encountered with SR2018. Unless they have replaced their legacy systems, they will be back to grappling with updating non-standard source code, and/or implementing costly manual operations and workarounds. Automated upgrades and industry best practise could help avoid such challenges (more on that later on).
Payments – Payment Tracker and Payment Confirmations, ISO 20022 and Target2 clearing
SWIFT Release 2020 will implement a Payment Tracker System for handling Universal Payment Confirmations as well as further development of the SWIFT gpi system for payments handling. While this will be complex for some banks to handle, the changes in store for 2021 are more dramatic.
As part of SR2021, SWIFT plans to move away from SWIFT FIN MT Payment messages, such as MT103 messages to the new ISO 20022 messaging standards. ISO 20022 will allow the new payment messages between banks, and towards the corporates and customers, to include a lot more data on each business party involved in the payment. The changes will enable much better sanction screening and AML control as well as more accurate regulatory reporting. However, the bank’s Master Data Management systems must be upgraded to cover a lot more data about the business parties of the bank. This is a massive undertaking.
In addition, the issue is adapting not just one, but all the many payments systems in use across the bank, many of which are based on legacy technology. And it doesn’t stop there. Every line of business system with the capability to make payments will also need to be updated.
At the same time, Target2 will be moving from SWIFT FIN MT103 and from using ‘Y-copy mode’ to the ISO 20022 messaging standard and use the ‘V-shape mode’. This will mean FIN messages can no longer be copied to the beneficiary bank and must be addressed only to Target2. No transition period is planned for these changes. All payments handled through Target2 must follow the ISO 20022 messaging standard from November 2021.
The requirements of the upcoming SWIFT Releases are acting as a catalyst for documenting the weaknesses in the structure and standards on which many IT systems are based. Often the larger the bank, and the longer their IT history, the bigger the challenges they face when updating their old IT systems.
Imagine how much simpler life could be if your technology vendors committed to delivering automated upgrades that incorporate all the changes mandated by SWIFT each year. In my view this is how things should be. The reality is that every year banks are forced to initiate complex technology reengineering projects, often involving armies of consultants. There are certainly some beneficiaries from maintaining this status quo, but it’s not the bank or the customer! And continuing to operate in this way is not sustainable long term.